Types of finance, use and impacts on growth
Moving onto businesses which obtained external finance – as set out in our research published earlier this year – we examined what types of external finance are more common among rural SMEs. We found that rural firms are more dependent on debt finance than urban firms, particularly overdrafts and credit cards.
While debt finance is the most popular choice of external finance, equity finance is used significantly less by both rural and urban SMEs, with rural firms more likely to seek equity finance from family and friends.
Rural firms tend more often to seek external finance for equipment and vehicles than urban firms, and vice versa for staff training and development. Differences such as these may be due to the type of finance available to them or different priorities within the businesses.
Considering the impacts of external finance on business growth, we were surprised to find that this is stronger for rural firms than for urban firms, after taking into account differences in business profiles, such as sectors, size, age and growth expectation. In other words, rural SMEs are able to achieve better business growth with the same amount of finance than urban firms. It could suggest that either rural firms are more effective in leveraging the benefits of external finance, or they depend more on external finance for financing growth than urban firms. I’m looking forward to trying to explain this in future through further research at NICRE and by hearing more from businesses and finance providers.